Machiavelli’s Take on Advisors
May 4, 2010 by Harvey Wigder
The word Machiavellian is often regarded as synonymous with manipulation. But, is that really what Machiavelli was about?
I recently read The Prince and was taken with Machiavelli’s sensible and straightforward message. He showed how applying an understanding of human nature would allow a ruler to increase power and territory. The manipulation inherent in the concepts was based on strategies that increased the ruler’s power through providing influence and wealth to supporters.
When he classified states in terms of how they were governed, it was clear to Machiavelli that democratic states were more lasting than despotic ones. They found a way to balance extremes and give each class a piece of the action. Sooner or later, he observed, a ruler in a monarchy would get caught up in himself and forget to govern for the common good. This would alienate subjects, leading to revolution and vulnerability to ambitious rival regimes.
Leadership requires wisdom and knowledge and no one individual has a monopoly on it. As a result, Machiavelli understood how important it was for a Prince to have advisers who could help him stay grounded in reality. Sustained power required that policies and decisions spread rewards and minimize discontent.
He cautioned that the price of choosing advisors who were sycophants would sooner or later be high. Conversely, he documented that Princes who had the wisdom to use advisors with knowledge and skill and the backbone to be truthful had a better chance of survival and enhanced success.
These insights are as relevant today for a business owner as they were for a Prince in Machiavelli’s time. (Read more.)
The business owner whose advisors are cronies or dependent vendors and employees without the background and insight to provide needed advice or who have been trained not to offer it will lose out in the end. If you are an owner, it might meet certain human needs to have your judgment reinforced by yes men. (We will review the tale of the Emperor’s New Clothes on the right hand side bar.) However, it isn’t good business practice. Here are ways you can evaluate your advisors and your ability to benefit from good advice:
- Does the advisor have experience and success in an area where you need help and where you are seeking guidance? (This could be in domains as distinct as general management, whether to invest in new plant or technologies, or financial management.) You should seek people with the resume to provide guidance and bolster your strengths.
- When you ask for advice, are your views reinforced or are you challenged (respectfully) to see things in a new way, think out of the box, examine prejudices, or question past policies?
- If you take the risk of following advice and doing something that is out of your comfort zone, does following the advice lead to hoped for improvements?
- If yes, you are probably on the right track and have a valuable advisor and should followed his/her advice literally and in sprit. Treasure that person and your collaboration.
- If no, there is a problem. Then you need the wisdom to find out if the problem was the advice or the way you implemented it or something else. Whether the problem was with you or the advisor, the business will be preserved and enhanced if you show the courage to deal with reality.
Machiavelli remains pertinent today because human nature remains the same. We can get caught up in our technological world and forget the universal principles that tend to repeat themselves through recorded history. One universal principle is that self insight and the ability to learn and change behavior remains problematic. People are complicated.
Six Keys to Successful Hiring in Private Businesses
May 4, 2010 by Harvey Wigder
Companies have traditionally defined successful executive hiring as finding and hiring an executive with the requisite skills, experience and personality for the position. From this perspective, if the executive fails, it is because the wrong executive was hired. Unfortunately, over 40% of executives leave within the first 18 months, proving time and again, that hiring the ‘right’ executive does not necessarily guarantee success.
At Fulcrum, we take the common sense view that success is not achieved the day an executive is hired, it is achieved over time. We define success as hiring an executive who helps a company achieve its objectives and the company becoming stronger after the executive is hired.
It is easy to blame performance failure on a new executive when it is clear that objectives were not achieved and the person and situation did not match as well as hoped. A more honest view looks at the executive and the organization to diagnose the causes of failure.
At Fulcrum, we believe that the owner and new executive must collaborate and plan for success. We list the six keys to successful executive hiring below.
1. Prepare Yourself for Change
One of the saddest failed executive hiring I witnessed was by an owner who hated running his company, and was unsuccessful selling it because his asking price was too high. Rather than improve his business to increase its value, the owner decided to hire an executive to run the company for him. Unfortunately, since the owner did not understand the need to build value, he set out to hire an executive with the contrary objectives of: 1) having significant talent and 2) behaving like a clone by operating the business the same way he did.
A proactive person was hired and every idea for change was knocked down. The relationship lasted six months. It was a disaster for both the company and new executive.
The truth is there are opportunities for change in any organization. Sometimes the important opportunities will be in sales and marketing: what is sold, how it is sold and to whom. Other times change will be in capitalization, improving internal operations or building a strong management team.
The hiring owner or CEO should understand that hiring a seasoned, proactive executive implies change. During the hiring process, the owner needs to understand: 1) what the executive candidate will seek to change, and 2) buy into how the company might be different as a result. If not, the relationship starts off with a basis for conflict and failure in place.
2. Gain Commitment of Management Team Early On
Too often, an owner or CEO decides to hire and then postpones getting the balance of the management team involved in the process. Whether this is due to lack of management skill or impatience to get the job done, this is a crucial mistake for two reasons. First, the wisdom of the team is not utilized to define needs and objectives, the skills to achieve them, or evaluate executive candidates. Second, the team loses an opportunity to gain a consensus on the problems that the candidate will seek to solve, and a commitment to any of the programs the candidate will seek to initiate. A lack of consensus forces the new executive to work in an environment in which the balance of the organization does not understand their mandate, or the role they need to play in achieving the company’s objectives.
It is essential for owners to channel the insights of their management team and key employees when initiating the hiring process and engaging them in the selection process.
3. Commit to Each Other’s Goals
Both the hiring executive and the new executive bet an important part of their future on the success of their new working relationship. Often, the hiring executive focuses on their own goals, without understanding that the goals of the new executive will drive their own actions and/or satisfaction with results.
Both parties need to understand what the other wants to accomplish, and be committed to achieving mutual success. This implies a literal contract and a psychological contract with fair and proper terms built on a foundation of mutual respect.
Owner-Managed Companies Have an Advantage in the War for Talent
May 4, 2010 by Harvey Wigder
In more than 20 years of advising business owners of private companies on hiring and retaining top talent, I’ve witnessed unique problems they face in building their management teams as they grow their companies.
In his seminal book Good to Great, Jim Collins stresses that getting the right people on the bus is paramount to building a great organization. While hiring the best people is a challenge for both private and public companies, it’s a more daunting task for smaller, privately owned companies that must compete with larger, public companies for the same talent pool. Smaller, private companies are at a competitive disadvantage when it comes to hiring top talent for three reasons:
1. Lack of large recruiting budgets to find top talent;
2. Lack of brand name recognition and prestige to woo top talent; and
3. Lack of competitive compensation and benefits packages to hire top talent.
That said, I’m about to contradict myself and argue that these hiring challenges are no longer hurdles. This exact point in time — the early years of the 21st century — offers the greatest opportunity in modern business history for private companies to find, hire, and retain top talent. In fact, I’d wager that as a result of a dramatic and fundamental shift in the world of work, private companies are in an increasingly powerful position to attract top talent. Two phenomena are bearing out this prediction.
First, members of Generations X and Y are seeking alternative employment to large, publicly traded corporations because they are suspicious of corporate America: Not only did they grow up in a world rife with corporate scandals, but many of them experienced first-hand how their baby-boomer parents were scorched by big corporations – they’ve either seen their parents suffer the financial and psychological blows of being laid off, or watched their parents practically work themselves into their graves to obtain the corner office. In this regard, the younger generations are redefining work and what it means to them. Instead of adopting the work ethic of their parents, they are seeking a quality of life and work/life balance that go beyond monetary compensation, fancy-sounding corporate titles, and climbing the corporate ladder.
Second, in an ironic twist, many baby boomers who have been successful in corporate America are growing tired of the corporate rat race. Since many of them want to continue working, they’re turning to the private sector as a place where they can add value and have a more profound and an immediate impact on a company’s bottom line. For many baby boomers, being a big fish in the small pond of a private company is more appealing and satisfying by mid-career; they no longer have to prove to themselves that they’ve made it.
My predictions are already being supported by a recent survey conducted by Burson-Marsteller, a leading public relations firm. The survey, 2005 CEO Capital™, reveals that “64 percent of workers from around the world say that a poor work/life balance is their top reason for not wanting to become a chief executive or other corporate bigwig.” Lesley Gaines-Ross, chief knowledge and research officer at Burson-Marsteller, further commented that “recent college graduates looking for jobs say that balancing work and home is important to them and work/life balance in general is a big issue that might give [them] pause before taking advantage of an opportunity.”
As a hiring consultant to privately owned companies, this survey is music to my ears and may be the most exciting time in my career because, as I’ve said before, the opportunities for private companies to grow by hiring top talent have never been greater than they are now. Thus, I’m motivated more than ever by the challenge of helping business owners “get the right people on the bus,” so they can take advantage of this shift in attitude and mindset.
Looking Outside the Family for New Leaders
May 4, 2010 by Harvey Wigder
When executive members of a family-owned business decide that the time has come to hire an executive from outside the family, the reason for doing so is usually precipitated by a significant disruptive event such as increased marketplace competition, a changing business model, a financial crisis, foundering leadership within the family ranks, lack of a succession plan, lack of vision or strategic direction, or simply the need for new blood and a new way of doing business.
It’s one thing, however, to arrive at this decision, it’s quite another to have the will and courage to execute what will inevitably become one of the most profound decisions in the history of the family’s business. For this reason, it is critical that the family executives take the time to understand the implications and ramifications of making this decision. Below are important issues that should be addressed before the family business owners set the hiring process in motion.
Put Business Matters Before Family Relations
Unlike other types of businesses, a family business is a complex, dual system that consists of two distinct and often contradictory parts: the family and the business. Thus, before a family business owner can set out to hire, he or she must come to terms with the fact that a new hire will fundamentally change both the family and business dynamics.
In effect, the decision to hire outside the family suggests that the business owner has already made a conscious decision to not only separate business goals from family relations, but also to put the goals of the business first and foremost. In other words, with this decision, the overarching goal to maintain family harmony or at least family order has shifted to promoting the business, knowing the risk of disrupting or altering the family dynamics. At this point, some family stakeholders may object and try to thwart the hiring process. One way of dealing with a family crisis is to bring in a family business therapist who has experience dealing with just this type of situation and who is able to provide useful third-party perspective to avoid long-term family dysfunction while still meeting the business needs.
Step Back and Reassess the Situation Before Proceeding
Not rushing into the hiring process is the first rule of thumb. While hiring mistakes are costly for any business in terms of time and resources spent, a bad hire in a family-owned business comes with an emotional cost, and it takes doubly the time for a family-owned business to regroup and begin the process again. Thus, time and care should be taken upfront to analyze the business operations, the business objectives, and goals to ascertain what skills, experience, and expertise are needed to bring the family business to the next level.
Come Face-to-Face with Your Blind Spots
Also at this stage, it’s important that the family business owners be aware that they may have professional and personal blind spots that they must address in order to understand the kind of executive capabilities that will be required to move the family business forward. For example, while the family business owners may know the mechanics of their trade, they may not have a good understanding of how to run a business, especially a business that is on the cusp of change. Even though the business has been operating in a certain way for a period of time and has achieved a certain level of success, the operations may need to be re-examined and overhauled to make way for the new talent who will be brought in to implement new processes and systems.
Obviously, the best and probably the only way to come to terms with one’s blind spots is through the help of an outside expert who can work with you to determine how the new hire will compensate for your shortcomings.
Understand That Executive Power Comes with the New Position
The decision to hire an outside executive must also come with the realization and an acceptance that the new position has to have a level of executive power that is unprecedented in the history of the family business. For this to happen, the business owners must be willing to relinquish the reins of authority to the new executive. Without this willingness, the case to hire an outside executive will be closed. What executive would be willing to come into an organization without the authority to make decisions that would effect change in the business operations? This is, by far, the most difficult decision that family-owned business members will have to face when making the decision to hire outside the family.
Accept That a New Executive Hire Will Change the Organizational and Personnel Dynamics
Family business owners must understand and accept that when a new executive is brought on board, the organizational structure, from day-to-day operations to personnel, will undergo fundamental changes. In particular, the business owners must realize that their existing relationships with their employees, including family and non-family employees, are not sacrosanct. The new executive will invariably form his or her opinion on how competent and effective the staff is and make adjustments accordingly, which will surely result in staff restructurings.
Making a successful executive hire in any business is a challenge under the best of circumstances. But for a family-owned business, the challenge is even greater: The hiring decision is compounded by the fact that the executive not only understand the business, but he or she must also mesh with the family dynamics. At the end of the day, what’s most required when making the decision to hire outside the family is the courage to do what is best for the business’s long-term success. It all begins and ends courage to act.
Profit Sharing: Entitlement or Motivator?
April 26, 2010 by Harvey Wigder
Background
Many business owners believe in profit sharing because of their personal values and also because they believe that profit sharing motivates employee loyalty and performance. This second conviction remains firm even though research shows that for incentive to impact behavior, there must be a clear link between the behavior and the reward. Because most jobs are so far removed from a direct impact on profits, this condition is seldom met.
Employees are unhappy when they do not get profit sharing and are happy when the do. Therefore, profit sharing can have a positive impact on employees’ feelings about their company–but it does not motivate performance.
The original purpose of Geiger’s profit sharing plan was to reward associate loyalty and compensate for lower pay during a period when the company was struggling for survival. Third generation President, Ray Geiger, promised to his new employees, “If you help us earn a profit, we will share it with you.”
That period of struggle has long been over, and Geiger is now one of the largest and most stable companies in the industry.
The Geiger Challenge
A few years ago I was hired by Geiger to conduct a systematic review of all compensation programs with the goal of ensuring equitable and competitive compensation, including incentives at all levels.
The mechanics of Geiger’s profit-sharing plan were typically straightforward. After the end of the financial year, the company allocated a portion of profits to a profit-sharing pool, which was distributed to associates in the same ration as individual wages to total wages. Management felt the associates didn’t understand the plan and were distrustful of the way is was administered. They wanted to turn this around and get them to share some of management’s concern for profits.
Plan Design
The most dramatic change in the new palm was to base the program on company and business unit earnings targets that were clearly stated at the start of the year. This meant that instead of having to wait until year-end to learn about their shares, associates were given a score-card to keep track of company results and their own share of profits.
At the start of the year, each associate is presented the financial targets for the company overall and for his or her division and department. Each associate’s incentive is linked primarily to the department performance, but at the same time it was decided that everyone should have no less than 25 percent of the incentive linked to the results of the company as a whole. Geiger hoped everyone would fee part of the total Geiger “family boundaries.
Due to budget constraints, hourly associates were targeted to earn a meaningful but modes 2.5 percent of annual compensation if targets were achieved–and proportionately more if the targets were exceeded. Some selected manager had higher earnings targets consistent with increased impact on overall results.
The plan had a minimum threshold for overall company profitability below which no payments would be made to anyone. Employees were told how their payment would increase, decrease, or fail to be paid depending on actual results.
Questions and Concerns
In the process of designing this program, management had numerous concerns and questions about the plan design. Here are some.
• Keeping It Understandable. It is very easy to overcomplicate a plan so that employees don’t ..understand how it works. If they don’t understand the plan, motivating value is lost. Indeed, lack of ..understanding may even result in a negative effect if people feel something is being put over on them. ..This suspicion existed with the previous plan.
• Non-Financial Performance Measures. The company had quality metrics for its Departments. They ..could be part of the scorecard. Theoretically, it would be preferable to base bonuses on some ..combination of profits and other metrics. However, this would be too difficult administratively. It was ..decided to continue to provide feedback on the quality measures but base the profit sharing payoff only ..on profit targets and results. The question remained: Were profit targets (which were more removed ..than team quality targets) be enough to drive performance?
• Making it Meaningful. The bridge between individual jobs and Department results is more direct than ..that between corporate results and individual jobs, but not as direct as desirable. The way to make the ..connection was with good communications and through wide spread problem-solving meetings. Could ..management pull this off?
• Size of Rewards. Were the target bonuses too small? The $775 shown in the example translated into ..about 1.3 weeks’ pay. Some employees even had smaller dollar targets, depending on annual wage. ..Was this amount large enough to make employees care about whether the company and their unit ..achieved its goals?
..Difficult Economic Times. The industry and company were going through difficult times. Because the ..economy was weak, client advertising budgets were down as were company revenues and profits. Did ..it make sense to launch a plan like this in a year when it was possible that there would be no profit ..sharing bonuses?
• The Unknowns. There were probably unanticipated consequences. What would they be? Would they ..be damaging?
Geiger management decided to implement the plan despite these concerns and evaluate results, making modifications as appropriate.
Results
The company’s experience in the second year of the plan shows the value of connecting the profit sharing plan and individual rewards to unit performance. Company revenue ended significantly below plan, yet profit exceeded targeted profits. As a result most employees received profit sharing payments that exceeded their original targeted amounts.
Why did this occur?
• Managers reported monthly (verbally and with graphs posted) to all employees how their units were ..performing compared to target. The CEO issued quarterly reports the overall company performance. ..Employees knew of the sales struggle and understood the need to focus on cost reduction
• Employees clearly understood that cost cutting was necessary if they were to get bonuses and put ..pressure on management to do so. Was the size of the potential reward large enough to motivate ..employees? The result indicates that potential bonuses were enough and additionally, that employees ..understood how the system worked for them.
• One large unit did not achieve bonuses the first year. What impact did that have on morale? The unit ..was particularly diligent about costs the second year, and successfully achieved bonuses. The first ..year was very disappointing for that unit. This disappointment seemed to focus the unit. When the unit ..made target and bonuses were paid the second year, there was a big celebration.
• The company had training programs for managers and employees on leading teams and motivating ..quality performance. This helped the process on involving employees in cost cutting and other ..improvement strategies and minimized resistance to implementation of the plans..
What were the unintended consequences?
The pressure on managers to achieve targeted goals came from above and below. In particular, the head of the largest division understood that the performance of her unit was critical to the company’s overall profits and, therefore, to whether the company reached the minimum threshold for any bonuses to be paid at all. She reports lost sleep over the challenges. The plan can hurt morale in units that get low bonuses because of unit performance. It is up to the unit leader to mobilize people.
Some scorecards had to be fine-tuned to better reflect circumstances in the unit. The biggest adjustment to the plan was in the sales organization. In the first year, bonuses were paid on profit as in other units. The results were as indicated above: costs were cut and profit targets were made. However, there was concern that this worked against building new business. Therefore, for the sales organization there was a major change. Now, half of the target is for building revenue and half for profits. This made the job of the sales executives more complicated but prevented the plan from motivating only cost cutting.
In any planning process, some executives will provide stretch targets while others will be conservative to both protect themselves and make bonuses more attainable. It is very important for a plan like this to provide a level playing field. Management must be diligent to prevent “sandbagging” and make goals uniformly realistic.
Conclusions
Everyone Understood The Link Between Profits and Their Personal Reward. This plan was dramatically successful in getting employees involved in the profitability of the business. It gave them a meaningful stake in the business’s success. Everyone at the same organizational level in the same unit had the same scorecard. Therefore, the plan provided group rather than individual incentives.
Hourly and Management In Same System. The plan proved meaningful to management and hourly employees and tied them together with a concern for company profits.
Beyond Entitlement To Earned Reward. Employees are still disappointed when there is no bonus. In this regard such a plan is no different from when profit sharing is seen as entitlement or a benefit. However, when bonuses are received they are seen as something earned and are celebrated. Structuring a plan in this way allows profit sharing to impact business results.
Employees Understood Rules and Wanted to Play. The success of this plan also reinforces research that indicates it is not the size or amount that counts. What counts most is making the ground rules clear and giving employees a means of making an impact on whether they receive a reward.
Ongoing Involvement By Senior Management. Finally, and most important, Gene Geiger and his management team wanted this program to succeed. He and his management team believed in sharing success and in profit sharing. As a result they were willing to invest effort in the communications and the process of reacting to events and making changes when necessary to make the program succeed. Their reward was that the profit sharing plan helped them improve corporate performance.